Higher spending will check liquidity

THE government’s plan to spend more, particularly for infrastructure building, will help monetary authorities in mopping up excess liquidity from the economy which now totals an estimated P1 trillion.

Public spending in the first half of the year had increased by 14 percent to P1.22 trillion, according to the latest cash operations report of the Department of Finance (DOF).

Bangko Sentral ng Pilipinas (BSP) has welcomed this growth in expenditure and its deputy governor, Diwa Guinigundo, has said that higher government spending means that there will be scope of greater use of domestic liquidity or the amount of money circulating in the economy.

The pressure to mop up the liquidity will be lower compared with what it could be in the absence of higher public spending, he stressed.

“We have been expecting that fiscal policy will be more expansionary because there is a scope for expanded public spending,” he added and noted that revenues are growing and “the need for infrastructure remains very serious because there is a large infrastructure gap.”

There is also a gap in public spending in health and education, he pointed out.

The present P 1 trillion in the economy are being mop up by monetary authorities through the reserve requirement ratio of banks, and its tools under the Interest Rate Corridor system such as the overnight deposit (ODF) and term deposit facilities (TDF).

“There will be greater use of domestic liquidity. Banks would simply have to withdraw their funding in ODF and TDF. We do not have to mop up as much as we should be doing at this point” said Guinigundo.